Heating Oil Jan '13 (HOF13)
|Contract||New York Harbor ULSD|
|Tick Size||$0.0001 (0.01 cent) per gallon ($4.20 per contract)|
|Daily Limit||$0.25 per gallon ($10,500 per contract)|
|Contract Size||42,000 gallons|
|Trading Months||All Months|
|Trading Hours||5:00p.m. - 4:00p.m. (Sun-Fri) (RTH 8:00a.m. - 1:30p.m.) CST|
|Value of One Futures Unit||$42,000|
|Value of One Options Unit||$42,000|
|Last Trading Day||Trading terminates at the close of business on the last business day of the month preceding the delivery month|
Heating oil is a heavy fuel oil that is derived from crude oil. Heating oil is also known as No. 2 fuel oil and accounts for about 25% of the yield from a barrel of crude oil. That is the second largest "cut" after gasoline. The price to consumers of home heating oil is generally comprised of 42% for crude oil, 12% for refining costs, and 46% for marketing and distribution costs (Source: EIA's Petroleum Marketing Monthly, 2001). Generally, a $1 increase in the price of crude oil translates into a 2.5-cent per gallon rise in heating oil. Because of this, heating oil prices are highly correlated with crude oil prices, although heating oil prices are also subject to swift supply and demand shifts due to weather changes or refinery shutdowns.
The primary use for heating oil is for residential heating. In the U.S., approximately 8.1 million households use heating oil as their main heating fuel. Most of the demand for heating oil occurs from October through March. The Northeast region, which includes the New England and the Central Atlantic States, is most reliant on heating oil. This region consumes approximately 70% of U.S. heating oil. However, demand for heating oil has been dropping as households switch to a more convenient heating source like natural gas. In fact, demand for heating oil is down by about 10 billion gallons/year from its peak use in 1976 (Source: American Petroleum Institute).
Refineries produce approximately 85% of U.S. heating oil as part of the "distillate fuel oil" product family, which includes heating oil and diesel fuel. The remainder of U.S. heating oil is imported from Canada, the Virgin Islands, and Venezuela.
Recently, a team of Purdue University researchers developed a way to make home heating oil from a mixture of soybean oil and conventional fuel oil. The oil blend is made by replacing 20% of the fuel oil with soybean oil, potentially saving 1.3 billion gallons of fuel oil per year. This soybean heating oil can be used in conventional furnaces without altering existing equipment. The soybean heating oil is relatively easy to produce and creates no sulfur emissions.
The "crack-spread" is the processing margin earned when refiners buy crude oil and refine it into heating oil and gasoline. The crack-spread ratio commonly used in the industry is the 3-2-1, which involves buying 1 heating oil contract and 2 gasoline futures contracts, and then selling 3 crude oil contracts. As long as the crack spread is positive, it is profitable for refiners to buy crude oil and refine it into products.
Heating oil futures and options trade at the CME Group. The heating oil futures contract calls for the delivery of 1,000 barrels of fungible No. 2 heating oil in the New York harbor. In London, heating oil and gas/oil futures and options are traded on ICE Futures Europe. Futures are also traded on the Multi Commodity Exchange of India (MCX).
Prices - CME heating oil futures prices (Barchart.com symbol code HO) on the nearest-futures chart traded sideways in the first half of 2014 but then plunged in the latter half of the year to post a new 5-year low and close 2014 down -40.2% at $1.8336 per gallon.
Supply - U.S. production of distillate fuel oil in 2014 (through November, annualized) rose by +3.3% yr/yr to 4.888 million barrels per day, a new record high. Stocks of distillate fuel oil in November 2014 were 126.093 million barrels. U.S. production of residual fuel in 2014 (through November, annualized) fell by -7.2% yr/yr to an average of 432,000 barrels per day, which was less than half the production level of over 1 million barrels per day produced in the 1970s. U.S. stocks of residual fuel oil as of January 1, 2014 rose +3.5% to 36.788 million barrels, down from the 2007 record of 42.329 million barrels.
Demand - U.S. usage of distillate fuel oil in 2014 (through November, annualized) rose +4.1% yr/yr to 3.985 million barrels per day, but remained well below 2007's record high of 4.198 million barrels per day.
Trade - U.S. imports of distillate fuel oil in 2014 (through November, annualized) rose +22.8% to an average of 190,000 barrels per day, down from the 2006 record high of 365,000 barrels per day. U.S. exports of distillate fuel oil in 2007 (latest data available) rose by +2.7% yr/yr to a 13-year high average of 221 barrels per day. U.S. imports of residual fuel oil in 2013 (latest data) fell -11.3% yr/yr to 227,000 barrels per day, which was less than a third of the levels of over 1 million barrels per day seen back in the 1970s.
Articles from the Commodity Research Bureau (CRB) Commodity Yearbook. The single most comprehensive source of commodity and futures market information available, the Yearbook is the book of record of the Commodity Research Bureau, which is, in turn, the organization of record for the commodity industry itself. Its sources - reports from governments, private industries, and trade and industrial associations - are authoritative, and its historical scope is second to none. Additional information can be found at www.crbyearbook.com. More commodity data from Commodity Research Bureau.
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